Bank licence: ‘Non-corporates should get preference’

The Reserve Bank of India should give preference to the non-corporate sector for new bank licences, Prime Minister’s Economic Advisory Council Chairman C. Rangarajan said.

“It is possible for the Reserve Bank to start with initially non-corporate business and find out whether there are suitable applicants and thereafter proceed to look at the other applicants,” he told PTI in an interview.

The RBI is in the process of finalising the guidelines for giving new bank licences after Parliament approved Banking Laws (Amendment) Bill last month.

The central bank, Rangarajan said, “should look at various types of financial institutions that are available currently and decide“.

“.... many of the strong private sector banks today have been at one time or other in the financial system. They can look at it first and look at the other later on,” he said.

Talking about the Banking Laws Amendment Bill, he said what the new banking legislation does is giving additional power to RBI, particularly to remove the directors or change the board of directors, if it feels there is something wrong.

As per the draft guidelines on new bank licences, business houses with successful track record and a minimum capital of Rs 500 crore will be allowed to set up commercial banks.

Currently, the minimum capital requirement for opening a bank is Rs 300 crore.

According to the draft guidelines, companies which are primarily engaged in the real estate business or stock broking will not be eligible for promoting a bank.

“Entities or groups having significant (10 per cent or more) income or assets or both from real estate, construction and broking activities individually or taken together in the last three years will not be eligible to set up new banks,” the draft said.

On foreign holding, it said the aggregate non-resident shareholding in the new bank should not exceed 49 per cent for the first five years.

At present, the foreign shareholding in private sector banks is allowed up to 74 per cent of the paid—up capital.

Over the last two decades, the RBI gave licences to 12 banks in the private sector in two phases — 10 in 1993 and two later.

There are 26 public sector banks, seven new private sector banks and 15 old private sector banks.

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Comments:

What does Mr Rangarajan mean exactly by "non-corporates". Would he rather licenses be issued to small rural businesses, sole-
proprietorships, limited partnerships, and unlisted groups unanswerable to the general public, shareholders, boards, SEBI, or RBI?